Exporting steelmakers in Asia are providing EU buyers with unrealistic verification reports, particularly in relation to ex-China production, sources tell McCloskey, threatening to undermine importers’ best efforts to use verified ‘actual’ emissions data to lessen their Carbon Border Adjustment Mechanism (CBAM) liabilities.
McCloskey has spoken with a number of importers and verification experts in assessing the reality of verification reports issued to EU buyers of Asian-origin material, identifying inaccuracies and misalignments in documents that would not pass scrutiny by independent reviewers, or national authorities – as required by the CBAM regulation.
The trend highlights that importers of in-scope steel goods must be wary not only of arranging verification across their supply chains, but also sensitive to the quality and expertise of the verifier, or risk being forced to pay punitive CBAM costs on default values when declarations are due. As illustrated by McCloskey’s Default Values Calculator, additional CBAM costs on default values can even exceed the price of the underlying good itself, for some steel products and origins such as Indonesian hot-rolled coil.
Verification Reports – the improbable and impossible
These verification reports – considered dubious as best – are not limited to smaller, or less experienced consultants. For example, McCloskey had sight of one verification report issued by Bureau Veritas China which assesses direct emissions via primarily integrated blast furnace-basic oxygen furnace (BF-BOF) route production as between 1.1-1.3t CO2e/t – levels described by China CBAM analyst Jing Liu as “ridiculous and absurd […] blatantly violating the basic laws of physics and metallurgy.”
Speaking to McCloskey, Liu outlined how Chinese integrated steel mills are generally reporting BF-BOF direct emissions at around 1.5t CO2e/t, but use data and calculation ledgers that are “flawed,” or could at best be considered “a mess,” drawing comparison to the extensive efforts of European integrated steelmakers to achieve actual emissions reductions to even 1.8t CO2e/t for their carbon steel production.
This is not only true of smaller mills in Asia, but also steelmaking groups with 7-figure total annual capacities, as evidenced by verification reports and source attestations.
The endorsement of this data – and in some cases its original calculation – by those Liu characterises as “internally renowned certification bodies” could thus threaten disaster for European importers that subsequently find their pre-verified emissions, and thus CBAM declarations on ‘actual’ values, rejected by accredited verifiers or EU CBAM authorities, potentially leaving importers without sufficient time to remedy the emission, verification, or overall CBAM report by any significant margin.
What’s in an error?
So how are these unrealistic verification reports produced? Data manipulation is a primary factor, described by Liu as encompassing elements like the omission of precursor data, exaggerated emissions deductions for energy-related elements, and mass-balancing inaccuracies.
A verification report seen by McCloskey appears to only assess CBAM emissions liability on export quantities, as opposed to the installation’s total production capacity (over double the reported volume), claiming a weighted average direct specific energy emissions (SEE) value below 1.3t CO2e/t – even despite the use of default values for iron and ferroalloy precursors.
One of McCloskey’s European trading sources notes that in some cases the ‘verified’ emissions are “clearly calculated to be under the [CBAM] benchmark” – which would suggest to importers that the import material comes free of any CBAM liability via specific embedded free allocation (SEFA) deductions, but of course only where the verification report is accepted by CBAM authorities.
And in fact, following the passing of the deadline to register as an authorised CBAM declarant – necessary to import in-scope CBAM goods, including iron and steel – on 31 March, importers now do not actually have any formal reporting obligations with European authorities until CBAM declarations for embedded emissions imported in 2026 come due, in September 2027.
While these unrealistic verification reports will of course need to be re-assessed on the relevant installation’s emissions data for calendar year 2026 (as the earliest possible reporting period) – rendering said verification reports a form of ‘pre-verification’ – importers have little else to rely on in trusting the integrity of foreign supplier data and making competitive sourcing decisions in the CBAM cost context, especially for smaller importing operators with lesser monitoring, reporting and verification (MRV) expertise or insufficient capital for CBAM consultancy services.
Bragging rights?
A German distributor described to McCloskey how their importing competitors have been “showing off” verification reports for Asian-origin steel that generates a minimal or even zero CBAM liability – despite the impossibility of some of the claimed emissions intensities for integrated productions – demonstrating the superficial attractiveness of a low CBAM duty to European steel buyers.
European steelmakers have identified a similar trend toward the impossible, with a source at a re-rolling mill describing a progressive reduction in reported Chinese slab emissions in recent years to the point of “fantasy.”
“The early data we received [from China] was feasible, but has turned into fantasy as time has passed,” said the source, citing emissions reports approaching 1t CO2e/t for integrated slab production.
“Numbers like 1.1t are simply impossible from a blast furnace. I do not think these reports from China are 100% reliable – it seems direct emissions are sometimes presented as indirect emissions, for example, so the total footprint at least looks correct,” said the re-roller.
The steelmaker said that they do not take these reports at face value, and instead use their own estimations for the emissions embedded via BF-BOF semi-finished production. Ultimately, however, any use of ‘actual’ CBAM data requires that this more ‘representative’ data be compiled by the exporter, and subsequently signed-off by an accredited verifier.
Not all doom and gloom, but far to go
A European trading source did offer some solace, stating that some of their suppliers in Asia – particularly among larger steelmaking groups – are demonstrating a greater understanding of CBAM’s unique requirements. These operators are engaging with CBAM requirements directly, identifying where the instrument introduces data transparency requirements beyond industry and global standards that inform, for example, the Environmental Product Declarations (EPDs) that previously guided low-carbon sourcing decisions, and aligning their MRV processes to best facilitate the successful verification of their ‘actual’ values.
That said, the trader only attributed a rough 10% of their supply chain to said camp, considering 90% of exporters as insufficiently prepared to produce a defensible verification report. Liu estimated similar levels of competency (for Chinese exporters specifically) in a social media post 8 April, stating “from my observation [of around 80 steel mill reports] 90% of the data from [Chinese] steel mills is incorrect.”
This assessment chimes well with comments made by Francesca Cerchia, Global Head of Climate Solutions at verifier SGS in an OECD webinar back in March, expecting that “zero foreign exporters would pass a CBAM verification today” on the basis of misalignment between industry norms, and the realities of supply chain transparency demanded by CBAM for a successful declaration on ‘actual’ values.
In the Chinese steel sector, market participants tell McCloskey that as the extent of CBAM’s compliance requirements become more clear, buyers are increasingly consolidating their sourcing toward a select group of larger Chinese mills considered better prepared to pass verification, even where these producers command a price premium. This trend is evident both in direct exports to the EU and in shipments to intermediary hubs like Turkey, where the verified emission data of the steel is essential for re-exporting to the European market, a Chinese trader said.
Author: Benjamin Steven and Maria Tanatar
